Refinancing a car loan?

[v-girl]

We bought my van without saving or planning because DH's car died and we have to have two cars. Our rate is terrible and it's one of those loans where you can't apply extra money to principal. I have three years left and am paying $500 to try to pay off early. Would I be better of refinancing or just keep chipping away at it. I can't really pay more than $500/month as I'm trying to build our savings too.

[diggitydot]

Refinancing a car loan?

Try to refi with a local credit union. You may have to join, but their rates for members are usually much better than any others in town.

We had a loan for one of our cars through Wells Fargo several years ago. Horrible rate, but decent for when the loan was originated. We called then after rates began falling, and they wouldn't budge on the 12.9% rate. Asshole even laughed when I told him we could get 3.9% through our credit union. So we went with the CU and never looked back.

[The White Coat Investor]

You have a high interest loan that you aren't allowed to prepay? Is that even legal? How can you refinance it if you can't prepay it? How can you pay $500 to try to pay it off early if you can't put extra principal toward it. Something doesn't make sense.

There's a lesson here to learn. Make sure you learn it so this doesn't happen again.

Assuming you actually can prepay it, it may very well be your best investment/savings to pay that off. Once you do, keep paying a few hundred dollars a month into a bank account specifically designated for your next car, then never buy a car on credit again. Rich people don't buy cars on credit. If you want to be rich, do what rich people do.

[SoonerTexan]

Hmm I'm confused too. We get a letter with ours every month that allows us to pay extra towards the principal. Are you saying you can't do that or can't pay it off all at once?

[v-girl]

I'm going to have hubby look at the loan and figure it out. I just pay the bills.

And I can't pay cash for a car if we need one right away and don't have cash saved up. Buying a clunker that will spend more time in the shop than on the road isn't helpful. Our other car is a '97 Honda that has been paid off since 2005 (we bought used). It's still my favorite car.


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[diggitydot]

Rich people don't buy cars on credit. If you want to be rich, do what rich people do.

I'm sure you don't mean that to sound nearly as condescending as it comes across, but not everyone has the resources available to "do what rich people do".

Some can't really go without a vehicle until they can afford to buy one outright or don't live in a community with even marginally functional public transportation. A dead car for many people means not making it to a job (thus, losing it), not being able to get to kids at school in an emergency, or not being able to grocery shop. It's not just about convenience or delaying gratification.

[SoonerTexan]

I was thinking something similar until I went back and reread. He isn't saying vgirl should not have bought this car until she could pay cash, but when she pays it off, if she can keep putting aside that amount for a future car, she should. Obviously that may or may not be possible depending on what else is going on financially with her life. I think the last sentence is what riles people up

Granted, in general I think that is a pretty hard thing to do in training. My parents actually did this their whole lives, but my dad is a mechanic and could maintain cars easier and cheaper than the majority of people out there, so it isn't really the same.

[diggitydot]

Refinancing a car loan?

Yeah, no I get what he's saying. My point is that it's kind of tone-deaf. Not everyone has the luxury of being able to wait to buy a car until they can pay cash. In many locations (particularly those sans decent public trans), they're a necessity that can't wait.

Ideally, sure -- everyone should wait to pay cash for everything. Let's face it, the med lifestyle isn't made up of a whole lot of "ideally", though.

[v-girl]

Our suburb has no regular public transportation. You really can't even do full grocery shopping here without a car. I certainly can't get kids where they need to go by foot.

[diggitydot]

Refinancing a car loan?

We live in a very low income area that is also very isolated and rural. Lack of transportation is a huge deal around here. The public trans is almost non-existent and people have a real hurdle just getting to their doctor appointments. It's not unheard of for people to need to drive a couple hours each way to get to their doc.

[SoonerTexan]

Okay while I can't really speak for him, I think the point wasn't that you need to wait to buy a car until you can pay cash, but if you think of it as a long term, never ending expense and continually put money away towards it, you'll be better off by paying less interest. Like saving for a vacation in advance instead of going and making payments on it later. Obviously cars and vacations are different, but sort of the same idea. If you keep a car 8 years, but pay it off in 4, in theory you have 4 years you could be saving for the next one and make a nice down payment. But like I said before, maybe that money needs to go elsewhere when the car is paid off.

I think it's a good idea and sound advice, but I don't necessarily practice it

[v-girl]

I get what he's saying too, but unless a rich relative appears with a giant check, we may have to do this one more time (finance a car) before we can start putting the money away to pay cash for a car.

[diggitydot]

I think it's a good idea and sound advice, but I don't necessarily practice it

Absolutely sound advice. Unfortunately, that sound advice has a high likelihood of being ignored when the delivery is flawed.

[GrayMatterWife]

You have a high interest loan that you aren't allowed to prepay? Is that even legal? How can you refinance it if you can't prepay it? How can you pay $500 to try to pay it off early if you can't put extra principal toward it. Something doesn't make sense.

There's a lesson here to learn. Make sure you learn it so this doesn't happen again. .

WTF? WhiteCoatInvestor: assuming you're the guy who runs the whitecoat website--we've all seen your website and many of us enjoy it. But , FWIW, and speaking only for myself: your attitude is not welcome or productive, so stow it. You don't know any of us, and you come off as a condescending jerk.

And for your information, yes, it is legal. Some lenders--especially on high-interest loans or for higher risk borrowers--are notorious for penalizing for prepayment or simply not allowing it. Most likely: no matter what she pays every month, she is charged interested on the principal she owes under the terms of the loan, not based on the principal she actually has outstanding, or she is paying a monthly penalty for the prepayment.

[v-girl]

To clarify, because I realized WCI's initial response seems like he thinks I'm a moron, there is no way to specify, when I make the payments, that the overage is to go to the principal. There is no penalty (that I know of) for paying it off early. I just want to pay less interest because it is a high interest loan.